Feds bottle caps

Congloms prep deals as end to regs looms

WASHINGTON — The forecast for the next wave of media consolidation got friendlier Friday when a federal appeals court sent strong signals that it will allow networks and the congloms who own them to add unprecedented numbers of TV stations and cable systems to their empires.

Reps of the mega-companies that dominate the entertainment biz were present — and smiling — during oral arguments before a three-judge appellate panel in the nation’s capital. Ultimately, the court’s ruling could reshape the TV biz in terms of who controls both programming and distribution.

It didn’t take long for the robes to begin questioning the merits and constitutionality of two Federal Communications Commission ownership rules underpinning the historic balance between nets and affiliates, as well as the historic tension between broadcasters and cablers.

“You’re in a jam,” said Judge Harry Edwards to FCC general counsel Grey Pash.

CBS, Fox and NBC want the court to scrap an FCC cap that blocks a broadcaster from reaching more than 35% of the national audience. Counsel for the nets told the appeals court that the FCC reg is “oppressive” and a violation of the First Amendment.

“Every day this rule is in effect, we are being deprived of reaching 65% of the nation’s households” said Edward Warren, attorney for the Eye, Fox and Peacock.

Already, CBS parent company Viacom is at about 40%. Fox is likewise over the cap due to its recent merger with Chris Craft.

Affiliates, i.e., independent station owners, argue that the rule is their last defense against the power of the networks, and that the nets shouldn’t be allowed to dominate both programming and distribution.

Should the 35% cap be lifted, networks will use their leverage and might to determine compensation and to buy up stations, according to the National Affiliated Stations Alliance (NASA) and the National Broadcasters Assn. (NAB).

While most attention has been focused on the 35% rule, the second FCC ownership reg up before the appeals court is of equal significance. As it stands now, the FCC won’t allow a broadcaster to operate a cable system in the same market.

Thus, congloms like AOL Time Warner can’t get into the lucrative business of operating a TV station in any of the many markets where they provide cable service.

Another good example is the Walt Disney Co., which would have to dump stations in certain major markets if it wanted to pursue a merger with a cable giant such as Comcast. (While the Mouse isn’t a direct party in the appeals case, top Disney lobbyist Preston Padden made sure to be on hand Friday.)

During the much-anticipated hearing, AOL Time Warner general counsel Paul Cappuccio told the court that the cross-ownership cable/broadcast rule equals “ongoing suppression” and “irreparable harm.”

Pash bashing?

But the three appellate robes reserved most of their questioning for FCC counsel Pash, who didn’t seem to make much headway in arguing that overturning the rules would have “enormous adverse consequences.”

The judges said it would be more than appropriate for the court to strike the ownership rules, but let the FCC draw up new limits — this time, with adequate justification.

Consumer advocates say remanding the rules to the FCC would be tantamount to overturning them altogether, since Republican FCC topper Michael Powell has made it clear that he favors deregulation.

Others disagree and say that now that he heads the regulatory agency, Powell must take a more centrist position compared to that he maintained previously as just a commissioner.

Nonetheless, it was difficult for affiliates to appreciate the witty barbs that punctuated much of Friday’s legal session.

“I don’t mean to disturb the good humor, but please, hear me out,” said attorney Bob Long, who argued for the NAB and NASA, which reps the more than 600 CBS, Fox and NBC affiliates.

Reach breach

Long said it was a “gross overstatement” for the networks to argue that they are being cut off from reaching 65% of the American audience, considering that nets reach virtually everyone through broadcast programming alone. What’s more, companies like Viacom that own some of the nets provide vast cable programming.

But nets say the affiliates are crying wolf and that affils still enjoy enormous power, pointing out that some larger station groups, such as Tribune, are nearing the 35% limit themselves.

In the competitive age of cable and satellite, networks say they shouldn’t be barred from fully participating in the marketplace.

Even before the oral arguments, the nets and AOL Time Warner were predicting success. Several months ago, the same appeals court struck down an FCC cable ownership rule prohibiting a cabler from reaching more than 30% of the national audience.

FCC cap cast

The FCC will soon launch a public probe into whether the cap should be kept in some fashion, but again, people are predicting that Powell will work toward deregulation.

In the coming days, the FCC is expected to launch a similar probe into repealing a cross-ownership rule barring a broadcaster from owning a newspaper in the same major market. Powell is definitely opposed to this regulation.

Meanwhile, the federal appeals court is expected to rule on the two ownership rules in the next few months.